Aero India 2013 starts on Wednesday

The 2011 edition of the biennial exhibition was focused on candidates for the $11 billion contract for medium multirole combat aircraft. In 2012, India selected the Rafale fighter jet, made by France’s Dassault Aviation, for modernization of the Indian airforce. Photo: Aniruddha Chowdhury/Mint

Updated: Tue, Feb 05 2013. 07 14 PM IST

Bangalore: The ninth edition of Aero India, the nation’s largest aerospace exhibition, will begin on Wednesday with 607 companies, including 352 foreign firms, and 78 national delegations having confirmed their participation by 1 February.

The 2011 edition of the biennial exhibition was focused on candidates for the $11 billion contract for medium multirole combat aircraft. In 2012, India selected the Rafale fighter jet, made by France’s Dassault Aviation, for modernization of the Indian airforce.

While most of the companies that make fighter jets will be absent at this year’s show, Dassault will exhibit three planes to the public. French President Francois Hollande lands in India later this month to conduct last-stage discussions to conclude the deal.

Price negotiation between Dassault and the defence ministry are still going on, said a senior Hindustan Aeronautics Ltd official who didn’t want to be named. Hindustan Aeronautics will be Dassault’s manufacturing partner in India.

Dassault will deliver 18 aircraft from its own facilities in France, and the remaining 108 will be manufactured under a license at HAL’s facilities, according to the conditions of the tender.

This year will be more focused on implementation of deals that have been signed by the Indian government, said Neelu Khatri, head of defence and security advisory services at KPMG India.

“For Indian companies, there are lots of opportunities in terms of entering into partnerships with foreign firms to satisfy offset requirements laid down by the Defence Procurement Procedure (2011)”, she said.

Under the 2011 version of the procurement procedure, at least 50% of any defence order of more than Rs 300 crore should be sourced from Indian firms to boost the local industry’s expertise.

Offset requirements have, however, not really taken off since the policy was introduced in 2005. A query under the Right to Information (RTI) Act by KPMG last year revealed that nine contracts signed by the Indian Air Force worth $3 billion have on ground implementation of less than 5%. Two contracts worth $400 million have on-ground implementation of 10%. Only one contract worth $44 million has on ground implementation of greater than 25%.

While penalty clauses are applicable to the extent of 5% to the undelivered amount, it appears that the defence ministry has been considerate in cases of non-delivery and has not disrupted any project over the need of delivery on offset obligations, Khatri said. There are severe regulatory bottlenecks in the sector.

There is a lack of clarity in the definition of what constitutes a defence industry for regulatory purposes and Indian companies face administrative hurdles in seeking industrial licenses, she said. The defence ministry is in the process of revising the 2011 procurement procedure to ease these bottlenecks.

While there is little excitement on deals from the Indian government, strong lobbying is expected at the aeroshow for the $25 billion programme on the fifth-generation fighter aircraft (FGFA) to modernize the Indian airforce. The government has not come out with a proposal on the order, but a joint Indo-Russian FGFA prototype will be on display based on Russia’s T-50 aircraft, while the US has also expressed its interest in the programme.